Retained earnings are further investments in the firm by the firm's shareholders. How should managers invest retained earnings in the interest of the firm's shareholders?

a.They should invest in financial assets such as stocks and bonds.

b.They should invest in real assets earning higher returns than the returns available to their shareholders on investments of comparable risk in the financial market.

c.They should invest in real assets that increase the size and diversity of the firm's productive activities.

d.They should place most of the retained earnings in cash as a precautionary balance to reduce risk.

Which of the following statements concerning the effective annual rate are correct?

I. A quoted rate of 4.5% compounded semiannually has a higher effective annual rate that a quoted rate of 4.5% compounded quarterly.

II. The more frequently interest is compounded, the higher the effective annual rate.

III. A quoted rate of 6% compouned daily has a higher effective annual rate than if the rate were continuously compounded.

IV. When borrowing and choosing which loan to accept, you should select the offer with the lowest effective rate.

a.I and II only

b.II and IV only

c.I, II, and III only

d.II, III, and IV only

e.I and IV only